NOTE: This disposition is nonprecedential. 

 United States Court of Appeals for the Federal Circuit 

2007-5052, -5097 

SACRAMENTO MUNICIPAL UTILITY DISTRICT, 

 

Plaintiff-Cross Appellant, 

v. 

UNITED STATES, 

Defendant-Appellant. 

 Timothy R. Macdonald, Arnold & Porter LLP, of Denver, Colorado, argued for 

plaintiff-cross appellant. With him on the brief were David S. Neslin, of Denver, Colorado, 

and Howard N. Cayne, of Washington, DC. 

Alan J. Lo Re, Senior Trial Attorney, Commercial Litigation Branch, Civil Division, 

United States Department of Justice, of Washington, DC, argued for defendant-appellant. 

With him on the brief were Jeanne E. Davidson, Director, Harold D. Lester, Jr., Assistant 

Director, and Joshua E. Gardner and Scott R. Damelin, Trial Attorneys. 

Appealed from: United States Court of Federal Claims 

Judge Susan G. Braden 
NOTE: This disposition is nonprecedential. 

United States Court of Appeals for the Federal Circuit 

 

2007-5052, -5097 

SACRAMENTO MUNICIPAL UTILITY DISTRICT, 

Plaintiff-Cross Appellant, 

v. 

UNITED STATES 

 Defendant-Appellant. 

Appeal from the United States Court of Federal Claims in Case No. 98-CV-488, Judge 

Susan G. Braden. 

___________________________ 

 DECIDED: August 7, 2008 

___________________________ 

Before MAYER, LOURIE, and RADER, Circuit Judges. 

RADER, Circuit Judge. 

This appeal is one of many arising from a longstanding contract dispute between 

the nuclear power industry and the Government. It represents the third in a trio of cases 

addressing the damages owed to the nation’s nuclear utilities because of the 

Government’s failure fulfill its contractual obligation to accept and dispose of the utilities’ 

radioactive waste. See Yankee Atomic Elec. Co. v. United States, No. 2007-5025 et al. 

(Yankee II), Pac. Gas & Elec. Co. v. United States, No. 2007-5046 (PG&E II). 
Sacramento Municipal Utility District (SMUD) originally brought this action 

seeking damages to compensate for the cost of storing spent nuclear fuel (SNF) and 

high-level radioactive waste (HLW) beyond the time that the Government promised, by 

contract, to begin storing that waste in a permanent and secure repository. Finding that 

the Government’s breach was a substantial factor in SMUD’s decision to complete its 

dry storage facility, the Court of Federal Claims awarded SMUD $39,796,234 in 

damages. Sacramento Mun. Util. Dist. v. United States, 74 Fed. Cl. 727, 735 (2006) 

(SMUD II). Because the Court of Federal Claims did not assess damages according to 

the rate at which the Government was contractually obligated to accept the utility’s 

waste, and because that court erred in allowing the Government to deduct a number of 

offsets from the amount owed to SMUD, this court reverses and remands. 

I. 

The general factual background of the contracts and circumstances surrounding 

the SNF cases appears in the trial court’s opinion and earlier opinions by this court. 

See Sacramento Mun. Util. Dist. v. United States, 70 Fed. Cl. 332, 336-56 (2006) 

(SMUD I); see also Me. Yankee Atomic Power Co. v. United States, 225 F.3d 1336, 

1337-40 (Fed. Cir. 2000). Accordingly, this opinion will only discuss the facts necessary 

for an understanding of the issues in this appeal. 

SMUD, a California public utility, owns the Rancho Seco nuclear power plant. 

SMUD shut the plant down in 1989 in response to a voter referendum. At that time, 

SMUD had 493 SNF assemblies onsite in a wet pool. In light of this closure, SMUD 

sought to decommission Ranch Seco, and thereby reduce its “nuclear footprint.” 

SMUD I, 70 Fed. Cl. at 340. 

2007-5052, -5097 2
Consistent with the Nuclear Waste Policy Act of 1982 (NWPA) (codified at 42 

U.S.C. §§ 10101-10270), SMUD (like all of the nation’s nuclear utilities) entered into a 

contract (the Standard Contract) with the Department of Energy (the Department or 

DOE) on June 14, 1983. Under that contract, SMUD paid approximately $40 million into 

the Nuclear Waste Fund (NWF). In return, the Department agreed to begin acceptance 

and disposal of SNF and HLW from SMUD (and all of the other utilities) on January 31, 

1998. The Department did not timely perform. In fact, the Department has yet to begin 

performance. Indeed, even though the contract obligated the Department to take title to 

and dispose of all of SMUD’s SNF and HLW, it has yet to accept even a single canister 

of radioactive waste. As a result, SMUD has been forced to continue storing its SNF 

and HWL onsite at Rancho Seco. 

The Department’s failure to perform beginning on January 31, 1998 constituted a 

partial breach of the contract. See Me. Yankee, 225 F.3d at 1343; see also Ind. Mich. 

Power Co. v. United States, 422 F.3d 1369, 1376-77 (Fed. Cir. 2005). The parties in 

this appeal dispute the amount of damages owed to SMUD for that breach. 

The Government appeals because the trial court did not construct and refer to a 

non-breach world in calculating damages. Specifically, the Government complains that 

the trial court did not use the contractual acceptance rate to develop a non-breach 

scenario. Thus, according to the Government, the trial court did not evaluate whether 

SMUD would have pursued dual-purpose dry storage even if the Department had timely 

performed. Discernment of SMUD’s motivation in constructing such a facility is 

complicated by factors unrelated to the breach—namely, SMUD’s interest in 

decommissioning the plant after the voter referendum and its desire to minimize storage 

2007-5052, -5097 3
expenses even in a non-breach scenario. Another important inquiry is whether the 

precise method of mitigation SMUD used—i.e., dual-purpose dry storage, rather than 

simple dry storage—must have been reasonably foreseeable to the Department at the 

time of contract formation. This court must also decide to what extent SMUD is entitled 

to recover costs for internal labor used in mitigating the Government’s breach, and 

whether the Government is entitled to a deduction for costs related to storage of NonFuel Components. 

II. 

This court reviews contract interpretation as a question of law without deference. 

Winstar v. United States, 64 F.3d 1531, 1540 (Fed. Cir. 1995) (en banc), aff’d, 518 U.S. 

839 (1996). Evidentiary rulings receive review for an abuse of discretion. Flex-Rest, 

LLC v. Steelcase, Inc., 455 F.3d 1351, 1357 (Fed. Cir. 2006) (citing Gen. Elec. Co. v. 

Joiner, 522 U.S. 136, 141-43 (1997)). A trial court’s selection of a causation standard 

likewise “depends upon the facts of the particular case and lies largely within the trial 

court’s discretion.” Citizens Fed. Bank v. United States, 474 F.3d 1314, 1318 (Fed. Cir. 

2007). 

As in Yankee II, the Government’s primary challenge on appeal relates to the 

Court of Federal Claims’ choice and application of the substantial factor causation 

standard. As this court explained in that case, “Although the substantial factor test is 

not preferred, this court has refrained from reversing trial courts that have applied the 

substantial factor test in Winstar and SNF cases.” Yankee II, No. 2007-5025 et al., Slip 

Op. at 5 (citing Citizens Fed., 474 F.3d at 1319; Ind. Mich., 422 F.3d at 1373). 

2007-5052, -5097 4
Accordingly, this court will not infringe upon the trial court’s discretion to use the 

substantial factor test. 

License to use the substantial factor test, however, should not be mistaken for 

permission to ignore the burden of proof required under that test. To prove causation 

under the substantial factor test, “[SMUD] had the burden to prove the contractual 

acceptance rate and apply that rate before suggesting that the Government’s breach 

was a substantial factor in causing [SMUD’s] claimed expenses. The trial court had the 

obligation to hold [SMUD] to that burden.” Yankee II, No. 2007-5025 et al., Slip Op. at 

6. 

The importance of this obligation is underscored by the factual quandary 

presented in this case. The Court of Federal Claims found that “until May 14, 1997, 

SMUD’s decision to authorize expenditures for ‘dual-purpose’ dry storage was made for 

business reasons, and that the Government’s subsequent January 31, 1998 breach of 

the Standard Contract was not a substantial causal factor in that decision.” SMUD I, 70 

Fed. Cl. at 365. In contrast, the trial court credited evidence that SMUD’s May 15, 1997 

decision to proceed with its dual-purpose dry storage facility, “despite delays, cost 

overruns, and the bankruptcy of a major contractor,” was made in anticipation of and 

substantially caused by the Department’s partial breach. Id. 

The difficulty with the distinction drawn by the Court of Federal Claims, however, 

is that the court made this determination without explicitly discerning the rate at which 

the Department would have accepted SMUD’s waste in a non-breach world. Such 

analysis is particularly important where, as here, plaintiff claims that but for the 

defendant’s breach, a once prudent business decision would have been abandoned 

2007-5052, -5097 5
because unforeseen circumstances rendered it economically ill-advised in a non-breach 

world. Indeed, the testimony relied upon by the trial court illustrates the necessity of 

first identifying a timetable—i.e., rate—for acceptance of spent fuel by the Department. 

The Court of Federal Claims gave great weight to the testimony of Rancho Seco plant 

manager Steven Redecker, who had responsibility for analyzing SMUD’s radioactive 

waste storage options and whose May 15, 1997 recommendation prompted SMUD to 

proceed with its dry storage project. Mr. Redecker testified that his analysis 

presupposed that the Department would have removed all of SMUD’s SNF and HLW by 

2006 in a non-breach world—i.e., at an overall rate of approximately 3,000 MTU per 

year (from all utilities). “Had they been performing and saying, yes, we're coming in 

1998 and that fuel will be gone by 2006, that would have changed the outcome of this 

entirely. It would have made the spent fuel pool an absolute certainty.” SMUD I, 70 

Fed. Cl. at 364-365. 

Thus, as in Yankee II, even though the trial court attempted to dodge the 

contractual acceptance rate question, the court implicitly relied on such a rate in 

rendering its decision. As this court stated in Yankee II, 

In the absence of an express acceptance rate, this court lacks any means 

to evaluate the soundness of the Court of Federal Claims’ contract 

interpretation. In any event, an acceptance rate based on assumption and 

approximation is not enough to support a finding of causation under the 

substantial factor test. In sum, the trial court had an obligation to 

determine the SNF and HLW acceptance rate under the Standard 

Contract and apply that rate in determining the substantial cause of the 

[utility’s] costs. 

Yankee II, No. 2007-5025 et al., Slip Op. at 7. 

In this appeal’s other companion case, PG&E II, the Court of Federal Claims did 

conduct an analysis to set an acceptance rate. In reviewing that case, this court 

2007-5052, -5097 6
interprets the Standard Contract as requiring the Department to accept SNF and HLW 

in accordance with the 1987 annual capacity report process. PG&E II, No. 2007-5046. 

Accordingly, this court vacates and remands with instructions that the Court of Federal 

Claims apply the Standard Contract acceptance rate identified in PG&E II to assess 

causation. 

III. 

The trial court, after finding that the Government’s breach was a substantial 

factor in SMUD’s decision to construct a dry storage facility, also found that the use of 

dual-purpose dry storage canisters in that facility was not permissible pre-breach 

mitigation. SMUD I, 70 Fed. Cl. at 362; Sacramento Mun. Util. Dist. v. United States, 74 

Fed. Cl. 727, 730 (2006) (SMUD II). Designed for dry storage, dual-purpose canisters 

facilitate safety and transportation because they reduce the number of times fuel must 

be handled. For example, other canister types require transfer to a wet pool or through 

a dry transfer before they can be transported. 

In analyzing whether SMUD was entitled to recover costs affiliated with the 

development and implementation of its dual-purpose dry storage system, the Court of 

Federal claims found that “[t]here is no evidence in the record, however, that the 

Government anticipated or was aware on June 14, 1983 that any breach of the 

Standard Contact might require the Government to be responsible for the cost of ‘dualpurpose’ dry storage.” SMUD I, 70 Fed. Cl. at 362. On a motion for reconsideration, 

the trial court reiterated this finding: “SMUD’s decision to utilize ‘dual-purpose’ dry 

storage was ‘not reasonably foreseeable by the Government on June 14, 1983.’” 

SMUD II, 74 Fed. Cl. at 730 (citations omitted). This holding misapprehends the 

2007-5052, -5097 7
requirements of the foreseeability prong of the substantial factor causation test, and is 

therefore reversed. 

Pre-breach mitigation damages are available to plaintiffs who can prove 

foreseeability, causation, and reasonableness. Ind. Mich., 422 F.3d 1375-76. Although 

the Government challenged the reasonableness of SMUD’s claim, the Court of Federal 

Claims found that such damages were not allowable because the use of dual-purpose 

storage canisters was unforeseeable at the time of contracting. SMUD I, 70 Fed. Cl. at 

347. 

But the law does not require that the specific method of mitigation be 

foreseeable. Rather, the foreseeability prong applies to the type of loss, not to the 

means of mitigation. See Citizens Fed. Bank v. United States, 474 F.3d 1314, 1321 

(Fed. Cir. 2007) (“If it was foreseeable that the breach would cause the other party to 

obtain additional capital, there is no requirement that the particular method used to raise 

that capital or its consequences also be foreseeable.”). That the method of mitigation 

which, in hindsight, appears most reasonable and appropriate was not used should not 

preclude recovery. Indeed, to rule otherwise would contradict the incentives of the 

mitigation doctrine altogether. See PG&E I, 73 Fed. Cl. 333, 419 n.71 (2006). 

Accordingly, the Court of Federal Claims’ finding that the use of dual-purpose storage 

canisters was not foreseeable at the time of contract formation was clearly erroneous 

and is reversed. See Bluebonnet Savings Bank v. United States, 266 F.3d 1348, 1355 

(Fed. Cir. 2001) (“Foreseeability is a question of fact reviewed for clear error.”). 

The Court of Federal Claims announced, without elaboration, a second ground 

for rejecting SMUD’s claim for damages arising from the cost of its dual-purpose 

2007-5052, -5097 8
canisters in its decision on SMUD’s motion for reconsideration. “In addition, ‘SMUD's 

decision to utilize ‘dual purpose’ dry storage was unreasonable.’” SMUD II, 74 Fed. Cl. 

at 730 (citations omitted). This court also reverses that unsubstantiated finding. “When 

mitigating damages from a breach, a party ‘must only make those efforts that are fair 

and reasonable under the circumstances.’” Home Savings of Am. v. United States, 399 

F.3d 1341, 1353 (Fed. Cir. 2005) (quoting Robinson v. United States, 305 F.3d 1330, 

1333 (Fed. Cir. 2002)); see also 11 Corbin on Contracts § 57.11, at 311 (2005 ed.) 

(“The doctrine of avoidable consequences merely requires reasonable efforts to mitigate 

damages.”); 3 Dobbs: Law of Remedies § 12.6(1), at 127 (2d ed. 1993) (“[T]he damage 

recovery is reduced to the extent that the plaintiff could reasonably have avoided 

damages he claims and is otherwise entitled to.”). It is the Government’s burden to 

show that it was unreasonable for SMUD to pursue dual-purpose storage canisters to 

mitigate the Government’s breach. See Old Stone Corp. v. United States, 450 F.3d 

1360, 1370 (Fed. Cir. 2006). 

The Government has not met its burden. SMUD was not alone in the 

development or use of dual-purpose storage. The use of dual-purpose storage 

canisters is near universal in the industry. Indeed, the Government did not even appeal 

the Court of Federal Claims’ award of damages to compensate for the costs of dualpurpose storage in Yankee II and PG&E II. Yankee II, No. 2007-5025 et al.; PG&E II, 

No. 2007-5046 Moreover, the Department and the Nuclear Regulatory Commission 

actually aided SMUD in its efforts to develop and implement this technology. In light of 

the circumstances surrounding SMUD’s dual-purpose storage efforts, the trial court’s 

summary dismissal of those efforts as unreasonable is clearly erroneous and cannot 

2007-5052, -5097 9
stand. Thus, this court reverses the determination that SMUD’s pre-breach mitigation 

activities were unreasonable. 

Causation, the remaining pre-breach mitigation factor, presents more difficulty for 

SMUD. As explained in Section II above, the trial court must apply the contract rate 

when assessing causation under the substantial factor test. Thus, this court must 

remand as to causation. In particular, the Court of Federal Claims must apply the 

Standard Contract acceptance rate in evaluating the Government’s partial breach of 

contract as a substantial factor in causing SMUD to pursue dual-purpose storage. 

IV. 

The Court of Federal Claims also rejected SMUD’s claim for reimbursement of 

internal labor costs incurred as part of its mitigation efforts. In particular, SMUD sought 

$13,812,040 in compensation for the time 256 of its employees charged to the dualpurpose dry storage project. In support of its request, SMUD presented evidence 

“detailing the percentage of hours that each SMUD employee charged to [the] ‘dualpurpose’ dry storage project relative to the total hours that each employee worked for 

SMUD.” SMUD I, 70 Fed. Cl. at 376. Nevertheless, the trial court refused recovery of 

internal labor costs for any employee who spent less than the majority of his time on 

that project. Id. Under this paradigm, the labor costs from just 16 of SMUD’s 256 

employees who worked on the dry storage project, totaling $4,329,532, qualified for 

compensation. Id.; SMUD II, 74 Fed. Cl. at 735. Because the Court of Federal Claims 

erred in requiring SMUD to prove how it would have used its internal labor pool absent 

breach by the Government, this court reverses. 

2007-5052, -5097 10
As explained above, an injured party can recover mitigation damages so long as 

it establishes that the claimed expenses were caused by the breach. See Ind. Mich., 

422 F.3d at 1373. As the trial court correctly noted, “[t]he fact that an injured party has 

used internal resources to mitigate a breach does not foreclose the injured party from 

recovering such costs.” SMUD I, 70 Fed. Cl. 376. Thus to recover internal labor costs 

incurred in mitigation of the Government’s breach, SMUD must prove that it did in fact 

use its own employees in its mitigation efforts, and the number of hours those 

employees spent on mitigation related projects. See, e.g., Dunn Appraisal Co. v. 

Honneywell Info. Sys., Inc., 687 F.2d 877, 883-84 (6th Cir. 1982). Upon meeting these 

requirements, SMUD is entitled to recover only those costs arising from the time its 

employees spent on mitigation efforts. 

The trial court, however, seeks to impose an additional requirement—namely, 

that SMUD must demonstrate that it would have eliminated or reassigned the 

employees who spent time on mitigation-related projects to collect damages to 

compensate for their mitigation activities. SMUD I, 70 Fed. Cl. 376. The trial court’s 

requirement of proof of how SMUD would have employed its labor force had it not been 

required to divert resources to the dry storage project is unprecedented. Indeed, in this 

case’s two companions the trial court found, and the Government did not appeal, that 

the utilities were entitled to recover the costs of internal labor on the dual-purpose dry 

storage projects at issue in those matters. Yankee Atomic Elec. Co. v. United States, 

73 Fed. Cl. 249, 250-259 (2006) (Yankee I); Pac. Gas & Elec. Co. v. United States, 73 

Fed. Cl. 333, 399-400 (2006) (PG&E I). Moreover, such a rule would encourage 

aggrieved parties to hire outside contractors—likely at greater expense—to perform 

2007-5052, -5097 11
mitigation-related work rather than utilize internal resources already familiar with the 

facility and its operations. See S. Nuclear Operating Co. v. United States, 77 Fed. Cl. 

396 442-43 (“[T]o not allow recovery [in the SNF cases] of appropriately established 

costs of internal labor (assuming causation and foreseeability [are] established) may 

lead to the use of contracts to perform future mitigation efforts at a higher cost, a result 

that is neither reasonable nor prudent.”). 

Furthermore, the trial court’s distinction between employees who spent a majority 

of their total time on mitigation-related work and those who did not is a false one. 

SMUD has requested compensation for the total number of hours its workforce spent on 

mitigation efforts. It does not matter if 10 employees dedicated 100 percent of their time 

or 100 employees dedicated 10 percent of their time to mitigation work. So long as 

SMUD is only asking for reimbursement for the total number of hours its employees 

worked on mitigation projects and can prove that its employees did in fact spend that 

time on those projects, it is entitled to recover. Therefore, in light of the trial court’s 

misapprehension of SMUD’s burden of proof, this court reverses the trial court’s grant of 

an offset to the Government for SMUD’s internal labor expenses. 

V. 

The Court of Federal Claims likewise granted the Government an offset for costs 

arising from the storage of nonfuel SNF assembly components. Notably, the trial court 

raised the specter of such an offset sua sponte, without request from the Government. 

Post-Trial Hr’g Tr. 63:24-63:2, Aug. 23, 2006. In its Opinion Clarifying Judgment, the 

trial court reasoned: 

Because SMUD was decommissioning the Rancho Seco facility, nonfuel 

components were put into dry storage that otherwise would not have been 

2007-5052, -5097 12
stored. See HTR 61. These nonfuel components included: control rod 

assemblies; burnable poison rod assemblies; power shaping rod 

assemblies, orifice rod assemblies, and storage cans containing cut-up 

incore detectors and control rods. See PX 598A at SMUD 0028244; see 

also HTR 65-68. Therefore, to arrive at the correct offset, the costs of the 

nonfuel components must be added to SMUD's proposed offset. 

SMUD II, 74 Fed. Cl. at 733. Because this reasoning is factually incorrect and in 

contravention of the plain terms of the Standard Contract, this court reverses. 

Nonfuel components are “things that typically fit inside fuel assemblies in addition 

to the assembly itself” and include the elements cited by the trial court in its clarification 

opinion. Post-Trial Hr’g Tr. 65:15-24. The Standard Contract specifically requires that 

the Department accept and dispose of a utility’s nonfuel components “as part of the 

spent nuclear fuel assembly”: 

Nonfuel Components. Nonfuel components including, but not limited to, 

control spiders, burnable poison rod assemblies, control rod elements, 

thimble plugs, fission chambers, and primary and secondary neutron 

sources, that are contained within the fuel assembly, or BWR channels 

that are an integral part of the fuel assembly, which do not require special 

handling, may be included as part of the spent nuclear fuel delivered for 

disposal pursuant to this contract. 

10 C.F.R. § 961.11 Appx. E(B)(2) (second emphasis supplied). This provision is 

unambiguous: nonfuel components that are part of a fuel assembly are to be accepted 

by the Department under the Standard Contract. Indeed, even the Government does 

not dispute that “non-fuel components are covered by the Standard Contract and that 

DOE is to accept those items along with SMUD’s SNF.” App. Reply Br. at 50. 

However, as the Government points out, SMUD is only entitled to collect 

damages related to the storage of nonfuel components that it would not have had to 

store if the Department had performed at the contractual acceptance rate. Therefore, 

on remand, the Court of Federal Claims must determine what SNF assembly storage 

2007-5052, -5097 13
2007-5052, -5097 14

costs SMUD incurred because of the Department’s failure to accept SMUD’s waste at 

the contractual rate, and award damages only for that amount. The Government is not 

entitled to an offset for nonfuel components in assemblies that SMUD would not have 

had to store in a non-breach world, but SMUD is likewise not entitled to damages 

absent proving a causal link. 

VI. 

Mirroring SMUD’s complaints, the Government appeals the trial court’s denial of 

an offset to reflect the costs it asserts SMUD would have incurred had it cancelled its 

dry storage-related contracts in 1997. App. Br. at 42. This court detects no error in the 

trial court’s determination that no offset is required because SMUD would have made 

business decisions allowing it to avoid continuing costs and obligations in the nonbreach world. See SMUD II, 74 Fed. Cl. at 734. Accordingly, the Court of Federal 

Claims’ denial of a such an offset is affirmed. 

AFFIRMED-IN-PART, REVERSED-IN-PART and REMANDED

COSTS 

Each party shall bear its own costs.